Econ Papers Controlling Strategy Management Accounting_5 doc

operational readiness of the restaurant. Was the kitchen in danger of getting overwhelmed by too many simultaneous orders? Were there too few waiting staff on shift? Did they have enough experience? Did kitchen and waiting cooperate or antagonize each other under pressure? These questions of operational readiness were moderated by man- agers’ perceptions of the characteristics of their guests. Would an arriv- ing party be happy to have a drink in the bar before their meal? Did parties prefer a faster service to cover embarrassing lapses in conversa- tion, or was a relaxed, slower service more appropriate? Could spending per head be increased by maintaining a constant supply of drinks to lively office parties? What concessions would restore customer satisfac- tion when a table had become dissatisfied? Considerable effort and discussion went into constructing legitimate management as an ongoing dialogue between restaurant managers and their area managers (Ahrens and Chapman 2002).Centraltothisdialogue were these questions: ‘What market are we in?’, and ‘Who are our cus- tomers?’. At the restaurant level they had obvious answers—whoever walks through the door. From the point of view of the strategists at the HO, the answers were much more complicated because they were tied up with more general processes of strategizing. For HO these questions formed the starting point for detailed processes through which various managers and directors sought to develop the strategic resources of Res- taurant Division such that the o verall strategy of growth might be system- atically supported without ignoring the skills, experience, and knowledge of the local staff who ultimately would serve their particular customers. The construction and management of the customer in the HO The newly appointed marketing director was very clear that her role and that of her team was to enhance the financial performance of Restaurant Division, supporting the strategy of growth. I see the role of the marketing department in driving the sales, driving the top line—inevitably making sure whatever we do, it doesn’t drive the top line to the detriment of profit. (Marketing Director) The starting point in achieving this goal was to establish agreement on Restaurant Division’s brand. It was well understood that the restaurant business involved managing certain key hygiene factors. 114 THOMAS AHRENS & CHRISTOPHER S. CHAPMAN Any piece of market research will tell you customer wants high standards, safe, clean. (HR Director) Long-term success, however, depended on the development of a dis- tinctive brand. The brand’s important at the moment because it gives the customer a certain minimum standard and a reassurance of what they’re gonna get when they go through the door. (Regional General Manager) . . . you come into a [Restaurant Division restaurant], you feel, immediately the anxiety is de-stressed from you by the way that we’re going to deal with you as you come through the door. And you sit down and you get an informal, quality meal, which is our brand position. We’re not there yet, that’s the big task for next year. (Marketing Director) But beyond being ‘relaxing’, ‘informal’, ‘accommodating’, and ‘friendly’, what should be key to the vision of Restaurant Division’s brand image? There was agreement amongst senior management that without a more distinctive customer proposition Restaurant Division’s growth strategy would be difficult to achieve. I mean we are perceived as an undifferentiated brand in an undifferentiated market. So, you know, I mean you could ask anybody what we were about [laughs] they wouldn’t answer in a line. I couldn’t find anything, in any docu- ment I read, I couldn’t find a succinct line. I could find a mission statement which was . . . I think it was ‘[to be] the first choice in every local area for a proper restaurant.’ [ . . . ] but we don’t have anything that’s consumer orientated at all. (Marketing Director) The marketing director’s frustration with the mission statement was driven by the fundamental problem of aligning strategic and operational management. Howcould she harnesstheefforts oflocalmanagerswithout a brand vision that was more clearly related to the day-to-day manage- ment of restaurants? And how could she do so without stifling restaurant managers’ desire to contribute their specific knowledge and experience? The mission statement as it stood struck a balance that placed the em- phasis firmly at the local level. ‘How to make each individual restaurant first choice in its own area’ opened up a very large range of equally valid actions, and the mission statement itself provided little guidance for choosing between alternatives. In the eyes of the marketing director the brand value of informality was convenient for an organization with res- taurants all over the country, but it did not offer a coherent concept. For a chain organization, the absence of some central theme to the mission was particularly vexing because it undermined the potential MCS AND THE CRAFTING OF STRATEGY 115 advantages that Restaurant Division could derive from its size. How exactly were HO’s considerable conceptual and technical resources to be deployed for the practical ta sks of addressing and attracting new and repeat customers? So on the one hand we, we’ve got to retain a national identity to get the benefit out of things like TV advertising, but at the same time research is telling us that people want it to be less formal as a brand, in other words, more informal and with more local taste, so there’ll be certain elements of the brand that are fixed and they tend to be the things you can’t touch really. (Operations Director) Despite this trend towards the fle xible and less uniform, the marketing director was at pains to point out that developing the brand concept and then fostering appropriate local actions required a significant analytical effort at the HO. She related the processes of strategic analysis and communication to key financial and non-financial information. Such information was a central plank in developing a sense of accountability for the actions of her subordinates and herself. I want [my marketing analyst’s work] to be measurable, I want to be able to turn round at the end of every piece of activity and say ‘this has worked or it hasn’t worked and this is why.’ And you can’t do that if you don’t set yourself proper objectives in the first place. (Marketing Director) [Corporate head office executive] said to me yesterday ‘Okay, Judy, if I gave you a million pounds can you do some marketing activity which would give me two million pounds?’ And I had to say, ‘No I can’t.’ Now I’d like to be able to turn round and say, ‘Yes I can, and it’s this, and this is why I know’—and I can’t. So I find that frustrating. (Marketing Director) But as well as fostering a greater sense of accountability the marketing team clearly felt that better management information would play a vital role in developing practical lines of action to support the divisional strategy. For exampl e, it might help decide which groups of existing customers and non-users to target with what kinds of one-off or long- term discount schemes, as well as which categories of restaurants to earmark for different kinds of refurbishment and alterations. I think you’ve got to clearly define who you’re targeting towards and you, you can either target people who are currently going in there [the restaurants], but they know you anyway and are turning up, so the cost effectiveness of that would be questionable [ . . . ] Or you can target people who, who have maybe not any perception of what you’re about. But if you do that you’ve got to give them a reason to turn up, a reason to re-evaluate, and a reason to say, well, why didn’t 116 THOMAS AHRENS & CHRISTOPHER S. CHAPMAN you go somewhere else. And that’s the trick in getting that mix right basically. (Marketing Analyst) You know, nineteen per cent of our family users never go back. They’ve got the [family discount] card, [but] never go back in because they haven’t got [an outlet] near them, ‘cos they’ve been travelling or whatever. And so we were just giving away discount on them and, and you know it should be an incentive for people to come back again. (Marketing Director) [Better information would] enable me to understand what percentage of our market would be using it how often. And [ . . . ] if it’s easier to get people moving from two to four [restaurant visits per year], or is it easier for some people to move from four to eight? And I don’t know that. Then I could say, ‘All right, well, the easiest to get my first slot of activity would be to get people to move from four to six visits a year, right.’ Well, I can mail them and I know that a mailing is going to cost me 48 pence. I know their names and addresses and I can target my offer to them, ‘cos I know they like this, um, I can say, you know, ‘If you spend ten pounds you get this,’ you know. I can do all sorts. (Marketing Director) I’d like to have some more segmentation by [restaurant], so, you know, I’d like to be saying with all the restaurants with gardens in summer, which ones aren’t performing? Of those where we’ve just done refurbishment, which ones aren’t and which ones are, which ones doweneedto do activity and which ones don’t need to do activity. And I’d like the regional marketing manager to take responsibility for being able to be proactive and analysing the information. (Marketing Director) What connected those ideas for the management of marketing activity was that they relied on strategic uses of financial and non-financial management information. The marketing director regarded more detailed management infor- mation as absolutely essential to her work. She felt that restaurant managers based their judgements all too often on ‘anecdotal’ informa- tion and might be dismissive of requests she might make of them to systematically collect more reliable information. Nevertheless, she and other senior HO managers were keen to avoid constructing analytical models of restaurant operations that sought to simply overwrite local knowledge and conditions. I see next year very much about national activity [ . . . ] establishing what the brand is about, which is run by my trial group [ . . . ] and then underneath we’ve got, and quite down near the bottom we’ve got a whole load of local activity, which is the manager knowing his area, knowing the garages, knowing the schools, knowing the cubs, 1 knowing the scouts, and building from the local information base around his [restaurant], direct mail, um, doing local promo- 1 Junior scouts. MCS AND THE CRAFTING OF STRATEGY 117 tions with local papers, um, and then tailoring his outlook much more to a local community. And that’s in terms of how the [restaurant] looks and in terms of what he actually does. (Marketing Director) On the brand positioning? [ . ] it’s being led by our marketing department. I’ve got two of my area managers sitting on the working parties ‘cos their areas will be in the trial for it, so they will have some influence on what goes into that in the detailed stuff rather than the directional stuff. The directional stuff is coming from the marketing department supported by the board. The detailed stuff’s coming into the sub-working parties which will have operational representatives on, and assistant people on and HR people on, to try and give it real flesh around the bones. (Regional General Manager) In relation to the brand value of informality the operations director explained how this process of giving it ‘real flesh’, or introducing it to specific restaurant contexts, worked in relation to a particular aspect of service standards for waiting staff. We have a thing called a check-back, in other wordswithin twominutes a waitress has to check-back with the customer on the main course: ‘Is everything all right, Sir?’ That will be measured if the mystery diner goes in. Now that, that is a good example of formality, so you and I could be talking like this, obviously we’re happy because we’re talking and she’ll come up, interrupt you . Now what we really want them to do is to just look and observe, and you can, if you and I sat there like this, you know [leans forward, frowns], she, she, she’ll know there’s an issue, assuming it’s not an argument. But if you say that to a waitress ‘Well you know, show your own judgement,’ so what you’re actually doing is looking to catch my eye and going, ‘Okay?’ before long, because we’ve got ten thousand people in our business, it’s becoming that when two guys come in in a suit, obviously talking about business, you don’t need to check-back. And that is the challenge. How do we not lose all that good work . . . Very difficult and I don’t know the answer other than through education. And of course everybody will say, ‘Well that’s easy. It’s obvious’. But in reality, I promise you now, it won’t be long before that’s what would happen: You don’t need to check-back if it’s two guys in a suit [ . ] The way we build up all these things is to involve waitresses, managers. Umpteen people now have been put together in groups to describe how best we do it [ . . . ] There’s got to be some system but at the same time it’s not got to appear as formal as you [as a customer] feel like you’re being processed. (Operations Director) Discussion In Restaurant Division, MCS informed various processes of strategizing. To achieve the targets for its strategy of growth, the marketing director 118 THOMAS AHRENS & CHRISTOPHER S. CHAPMAN sought to develop an initially undifferentiated brand concept in ways that would enable her to harness the efforts of individual restaurant managers for specific HO initiatives, each one of which would be tar- geted at specific strategic objectives. For exampl e, with respect to the management of customers, she systematically segmented customers into groups with specific consumption profiles for whom particular offerings, membership cards, and other incentive schemes were designed to increase customer spending. Spending increase was ana- lysed as a combination of repeat custom and spending per visit. This allowed not only for the evaluation of operational management but also generated information that could be used to refine the customer pro- files. With respect to the management of restaurants she categorized them acco rding to the facilities that they offered to customers and the revenue effects of different kinds of enhanceme nts to those facilities. From a marketing point of view MCS was thus central to enabling the marketing department to work towards Restaurant Division’s strategy of growth through small measurable steps. In this way, the growth strategy could be related to specific marketing activities intended to link to patterned but not predetermined local activity in restaurants. The strat- egy of trying to be the ‘first c hoice in every local area’, left the marketing team initially frustrated because it simply sought to leave the local local, and did not provide a brief for HO marketing. It gave no direction for action. The tailoring of local offerings in terms of service or marketing incentives was regarded as important, but it was also acknowledged that it ought to be based on some core strategic proposition without, im- portantly, simply replacing local efforts with central instructions. The examples of the working parties on brand positioning and the check- back initiative showed the perceived advantages of seeking to develop service elements jointly between the HO and restaurants in order to achieve the desired effects on restaurant operations. Herein, we believe, lies an important contribution of a practice per- spective on MCS and strategy. Traditionally, management control stud- ies have highlighted the problems arising from local resistance to HO strategies, or contrasted HO with grass-roots strategies. Vaivio (1999 ) for example, emphasized the initially disciplining effects of central financial and non-financial management information on local sales managers and the subsequent reinterpretation of that information in an emerging sales discourse that placed local over central insights. By contrast, a practice perspective makes visible the potential for management control information to become tied up in a productive local–central interaction. Strategy formulation becomes a process that MCS AND THE CRAFTING OF STRATEGY 119 reckons with local resistance (de Certeau 1988). Management control information offers a way of not only gauging the effects of different strategic designs but also pursuing different degrees of flexibility enjoyed by restaurants that operate within that overall design (Ahrens and Chapman 2004a). Our analysis of managers in Restaurant Division recognized that strategy as an encompassing organizational phenomenon ultimately comes to life in the actions of individual managers (Ortner 1984), which would suggest that management control as a practice is far from the exclusive domain of accountants. In this chapter we sought to explore the ways in which HO marketing staff and various managers from the operations hierarchy sought to draw on performance informa- tion in their efforts to draw together diverse facts, aspirations, and routine actions in the construction of Restaurant Division’s strategy. Managers throughout the organization sought to distribute the cogni- tive processes of strategy formation across the organization rather than centralize them at the HO (Lave 1988). The processes of management control—the collection of information for mapping organizational ac- tion as well as the dissemination of performance information—formed one of the ways in which they sought to bring about this ‘distribution- across’. In this sense our analysis connects with process-oriented strategy studies. What we seek to add is an und erstanding of how processes of strategizing come to be constructed through MCS as well as non- financial management information. For example, in terms of Restaurant Division’s relationship with its customers, the strategic task lay as much in customer selection and moulding as in identifying what the customer wants. With the help of different kinds of management information the process of strategizing became a process of discovering what the com- pany wanted the customer to want and develop processes to deliver according to those aspirations. Our study of the practices surrounding the strategic uses of manage- ment control information in Restaurant Division thus occupies a middle ground between emphasizing the structuring powers of MCS and their deconstruction into the actions of networks of individuals. Management control as ‘action at a distance’ emphasizes its colonizing qualities, the ways in which the uses of MCS are meant to reproduce centrally conceived designs of operation across diverse locales (Robson 1992). Actor-network theory, by contrast, emphasizes the constitution of man- agement control and other organizational systems through networks of individuals (and non-humans) (e.g. Briers and Chua 2001; Jones and 120 THOMAS AHRENS & CHRISTOPHER S. CHAPMAN Dugdale 2002; Dechow and Mouritsen 2003; Quattrone and Hopper, In Press). The shifting nature of those networks opens up the possibility of deconstructing management control, through either change or disinte- gration, because the networks tend to be characterized by a lack of durable and overarching motives, such as the commercial motive in the case of Restaurant Division. Our study emphasizes the ongoing construction of the commercial motive through highly varied uses of MCS. Rather than an instrument of power at a distance or the seed of organizational deconstruction, MCS functioned as an interactive bridge between diverse operational and strategic resources. Conclusions By focusing on the routines and practices surrounding the strategic uses of performance information both in the HO and in restaurants we were able to more clearly demonstrate the ways in which strategy and oper- ational management interact. This relationship lies at the heart of what makes the functioning of MCS so hard to under stand. It frequently appears that all the finely designed ‘tie-ins’ between high-level strategic planning and detailed opera tional control seem to disintegrate as soon as a large organization tries to actually use its MCS. Complex manage- ment control innovations that promised to ‘drill down’ corporate ob- jectives into the last manufacturing cost centre and the farthest sales district end up falling into disuse. In the past, the response from the proponents of activity-based cost- ing (ABC), the BSC, or Economic Value Added to critics of those systems was simple: Use it more strategically! ABC becomes activity-based man- agement. The BSC stops being a high-level perfor mance measurement system for non-financial performance measures and becomes instead a cornerstone of strategic management—as does Economic Value Added. However, understanding the implications of such exhortations requires a more detailed understanding of the ways in which MCS might support the crafting of strategy (Mintzberg 1987). In practice, the usefulness of MCS depends on whether managers with sufficient experience of their organization and industry are given the time to model the interdependencies between organizational pro- cesses, strategic priorities, and financial outcomes. In our case organ- ization we observed the ways in which this process of modelling became a routine part of day-to-day management, spilling over into attempts to MCS AND THE CRAFTING OF STRATEGY 121 engender the development of new ways of interacting with customers. Performance information was to play a central role in shaping wide- ranging discussions that drew together many interfunctional relation- ships (Chapman 1998). We saw, however, that performance information was not in and of itself strategic, but opened up possibilities for managers to model the business for themselves. The emphasis was not on MCS and techniques as such but on the ways in which they were linked to operational and strategic issues. This was because, apart from very simple and stable situations, the conceptual linkages between organizational strategy and operational action cannot rely on mechanical cause-and-effect relation- ships. In competitive markets such relationships are short-lived. For management control to function strategically it is best used as a framing device, not an ‘answer machine’ (Burchell et al. 1980). Other- wise strategy mapping may come to be mista ken for the organization’s ‘actual’ business model rather than a process that was meant to support modelling the business. In this sense the criticisms that are often lev- elled at MCS with strategic potential, such as the BSC or ABC, are confusing the systems design with its use. When the causal maps on which those systems are based are not updated, financial analysis easily ossifies into a routine of its own, instead of engendering routines of financial analysis for better understanding the organi zation. References Ahrens, T. (1997). ‘Strategic Interventions of Management Accountants: Everyday Practice of British and German Brewers,’ European Accounting Review, 6(4): 557–88. —— and Chapman, C. S. 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Management accounting researchers have often ignored this question when they say that management accounting is for implementing rather than formulating strategy Inspired by Anthony’s seminal work (1965), where management controls and strategic planning were separated, management accounting researchers have often treated strategy as a ‘black box’ However,... ‘Reflections on the Papers in This Issue and a Commentary on the State of Strategic Management Accounting’, Management Accounting Research, 7(2): 271–80 Vaivio, J (1999) ‘Examining ‘‘the Quantified Customer’’ ’, Accounting, Organizations and Society, 24(8): 689–715 Whittington, R (2002) ‘The Practice Perspective on Strategy: Unifying and Developing a Field’ Paper presented at the Academy of Management, Denver,... prior to the work to develop strategy and that therefore strategy is not before organizational action and problems but part of organizational action and problems Strategy is one of the operations of organizational action Thus, we suggest, like others, that strategic management accounting should be studied in the context in which it operates (Burchell et al 1980; Hopwood 1983) If strategy is one of the operations... blinded by the separation between formulation and implementation of strategy However, as we try to make sense of the four cases we present hereafter, it appears to us that emergent strategy is part of (strategic) management accounting because, seen as practice, strategy often starts as a discussion of organizational problems, and (strategic) management accounting is involved in developing and responding... strategic management accounting, which assume that by definition we know what items such as strategy and performance are a priori In this chapter we challenge whether strategy in relation to the BSC is in fact (always) deliberate and builds on an outside–in logic We suggest that realized strategy in relation to the BSC emerges from particular organizational problems The entities constituting strategy. .. corporate value and coherence is about (e.g Chenhall and Langfield-Smith 1998; Langfield-Smith 1997) and management accounting is no longer neutral as Anthony (1965) suggested Strategic management accounting is involved in mobilizing objects and logic that seek to encapsulate what strategy is Here management accounting enters a complex field because it has to navigate between multiple, heterogeneous,... Practice Turn in Contemporary Theory London and New York: Routledge Simmonds, K (1981) ‘Strategic Management Accounting’, Management Accounting, 59(4): 26–29 —— (1982) ‘Strategic Management Accounting for Pricing: A Case Example’, Accounting and Business Research, 47, 206–14 Simons, R (1990) ‘The Role of Management Control Systems in Creating Competitive Advantage: New Perspectives’, Accounting, Organizations... thus framed the concerns labelled strategy We analyse how four firms brought the BSC into practice and discuss what purposes and concerns it was related to Our aim is not to examine how strategy should have been formulated in relation to the BSC but rather to analyse how the firms did discuss strategy Some may suggest that managers in the companies misunderstood what strategy and the BSC were all about... strategic management accounting/performance measurement (see also Preston et al 1992; Chua 1995; Briers and Chua 2001) The analysis refrains from seeing strategy as a black box and attempts to see and illuminate its 128 ALLAN HANSEN & JAN MOURITSEN adoption to and fluidity compared with local conditions and concerns (see also Roberts 1990; Miller and O’Leary 1993; Mouritsen 1999) Strategy and the BSC Strategy. .. However, recent debates have paid more attention to strategy The debates in the 1990s, for example, emphasized that the future of management accounting (e.g Bromwich and Bhimani 1994; Ittner and Larcker 1998) is dependent on whether it can frame and conceptualize strategic issues in organizations; to articulate strategy is a way to regain the lost relevance of management accounting (Johnson and Kaplan 1987) . Routledge. Simmonds, K. (1981). ‘Strategic Management Accounting , Management Accounting, 59 ( 4): 26–29. —— (1982). ‘Strategic Management Accounting for Pricing: A Case Example’, Accounting and Business Research,. (2003). ‘In Search of Strategic Management Accounting: Theoretical and Field Study Perspectives’, Management Accounting Research, 14(3): 255 –79. MCS AND THE CRAFTING OF STRATEGY 123 Schatzki, T. R.,. —— (2004b, 5 6 June). Management Accounting as Practice and Process’. Paper presented at the Global Management Accounting Research Symposium, Lansing, MI. —— and Dent, J. F. (1998). ‘Accounting